Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from the Act and NI 31-103 to permit registered portfolio managers to engage the pooled funds they advise, in fund-of-fund investments and in in-species transactions -- the portfolio managers advise both the top and bottom funds and one portfolio manager acts or may act as trustee of the top and bottom funds -- pooled funds are 'associates' of one of the portfolio managers - reporting relief also granted from the monthly reporting requirements under the Act.

Applicable Legislative Provisions

Securities Act (Ontario), ss. 111(2)(b), 111(3), 113, 117(1)(a), 117(2).

National Instrument 31-103 Registration Requirements, ss. 13.5(2)(b)(ii) and (iii), 15.1.

December 11, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

INVESCO TRIMARK LTD.

(Invesco)

AND

INVESCO INSTITUTIONAL (N.A.), INC.

(Invesco N.A.)

(Invesco and Invesco N.A. collectively, the Filers)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers on their behalf and on behalf of the mutual funds set out in Schedule A hereto (the Existing Pooled Funds, and individually, an Existing Pooled Fund) and other mutual funds that may be established and managed by Invesco from time to time (the Future Pooled Funds, together with the Existing Pooled Funds, the Pooled Funds) for a decision under the securities legislation of the principal regulator (the Legislation):

(a) pursuant to section 15.1 of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103), exempting the Filers from the prohibitions contained in section 13.5(2)(b)(ii) and (iii) of NI 31-103 that prohibit a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell a security from or to the investment portfolio of an "associate" of a "responsible person" as defined in the Legislation, or from or to an investment fund for which the responsible person acts as an adviser, to permit the purchase and sale of portfolio securities between:

(i) the Trimark Balanced Pool (the Balanced Pool) and the Invesco Core Canadian Fixed Income Pool (to be established on or about December 15, 2009) (the Canadian Fixed Income Pool);

(ii) the Balanced Pool and the Trimark Canadian Equity Pool (Canadian Equity Pool); and

(iii) any other Pooled Funds managed by Invesco in respect of which the Filers act as registered advisers,

(each an In-Specie Transaction, and the above section (a) is collectively, the In-Species Relief); and

(b) pursuant to section 113 of the Act for relief from the following provisions:

(i) section 111(2)(b) of the Act which prohibits a mutual fund in Ontario against knowingly making an investment in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial security holder; and

(ii) section 111(3) of the Act, which prohibits a mutual fund in Ontario or its management company or its distribution company against knowingly holding an investment described in (i) above,

to permit:

(iii) the Balanced Pool to invest in the Canadian Equity Pool and the Canadian Fixed Income Pool;

(iv) an Existing Pooled Fund to invest in one or more other Existing Pooled Funds or Future Pooled Funds; and

(v) a Future Pooled Fund, to invest in one or more Existing Pooled Funds or Future Pooled Funds

(the above section (b) is collectively, the Related Issuer Relief); and

(c) pursuant to section 117(2) of the Act for relief from the requirement under section 117(1)(a) of the Act to file a report of every transaction of purchase or sale of securities between a mutual fund and any related person or company ( collectively, the Reporting Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) in respect of the In-Species Relief, the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia , Prince Edward Island, and Newfoundland and Labrador;

(c) in respect of the Related Issuer Relief and the Reporting Relief, the Filer has provided notice that section 4.7(1) of MI 11-102 is intended to be relied upon in Alberta.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

1. Invesco is a corporation amalgamated under the laws of the Province of Ontario and has its registered head office in Toronto, Ontario.

2. Invesco is registered in Ontario and Newfoundland and Labrador as a dealer in the category of exempt market dealer and as an adviser in the category of portfolio manager, and is registered in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, and Prince Edward Island as an adviser in the category of portfolio manager.

3. Invesco is the trustee, manager and portfolio manager of the Existing Pooled Funds and will be the trustee, manager and portfolio manager of the Future Pooled Funds.

4. Invesco N.A. is a limited liability company formed under the laws of the State of Delaware, U.S.A.

5. Invesco N.A. is registered as an adviser in the category of portfolio manager in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Ontario and Newfoundland and Labrador and is registered in the United States as an investment adviser under the Investment Advisers Act of 1940.

6. Invesco N.A. provides investment advisory services to the Pooled Funds in connection with the cash portion of their assets.

7. Securities of the Pooled Funds are, or will be, sold solely to investors in Canada pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106).

8. Each of the Pooled Funds is, or will be, a "mutual fund" and a "mutual fund in Ontario" as defined in the Ontario Act and a "mutual fund" as defined in the Alberta Act.

9. None of the Pooled Funds is, or will become, a "reporting issuer", as defined in the Act. Each Pooled Fund is not in default of securities legislation in any province or territory of Canada.

10. The Filers are not reporting issuers in any jurisdiction of Canada and are not in default of securities legislation in any province or territory of Canada.

In-Specie Transactions:

11. The Filers wish to engage in In-Specie Transactions pursuant to which:

(a) the Balanced Pool will purchase units of the Canadian Fixed Income Pool and as payment for the units make good delivery to the Canadian Fixed Income Pool of debt securities (the Debt Securities);

(b) the Balanced Pool will purchase units of the Canadian Equity Pool and as payment for the units make good delivery to the Canadian Equity Pool of equity securities (the Equity Securities); and

(c) a Pooled Fund will purchase units of another Pooled Fund and as payment for the units make good delivery of securities that meet the investment criteria of that Pooled Fund.

12. The investment objective of the Balanced Pool is to achieve strong capital growth and current income over the long-term by investing primarily in a diversified portfolio of equity and debt securities.

13. The investment objective of the Canadian Equity Pool is to achieve strong capital growth over the long-term by investing primarily in equity securities of Canadian issuers.

14. The investment objective of the Canadian Fixed Income Pool is to achieve a combination of current income and capital growth over the long-term by investing primarily in high-quality Canadian government and corporate debt securities.

15. The Debt Securities and the Equity Securities meet the investment criteria of the Canadian Fixed Income Pool and Canadian Equity Pool respectively. The Filer considers an investment by the Balanced Fund in units of the Canadian Fixed Income Pool and the Canadian Equity Pool by way of In-Specie Transaction, to be a more cost effective and efficient way for the Balanced Fund to achieve exposure to the Debt Securities and the Equity Securities than a direct investment in those securities.

16. In the circumstances, instead of the Balanced Pool disposing of the Debt Securities and the Equity Securities and the Canadian Fixed Income Pool and Canadian Equity Pool respectively purchasing the same securities and incurring unnecessary brokerage costs, the Debt Securities and the Equity Securities would, pursuant to each In-Specie Transaction, be acquired by the Canadian Fixed Income Pool and Canadian Equity Pool respectively.

17. The Filers also consider an investment by one or more Pooled Funds in units of other Pooled Funds by way of In-Specie Transaction, to be a more cost effective and efficient way for the Pooled Funds to acquire and dispose of securities with other Pooled Funds.

18. It is anticipated that each In-Specie Transaction will be executed by Invesco or by one of its affiliates.

19. None of the securities which are the subject of each In-Specie Transaction will be securities of related issuers of the Filers.

20. As the Filers are portfolio managers of the Balanced Pool, the Canadian Fixed Income Pool and the Canadian Equity Pool, and are or may be portfolio managers of other Pooled Funds, each Filer would be considered to be a "responsible person" within the meaning of the applicable provisions of NI 31-103. As Invesco is the trustee of the Balanced Pooled, the Canadian Fixed Income Pool and the Canadian Equity Pool, and is or will be the trustee of other Pooled Funds, each Pooled Fund will be an "associate" of a responsible person within the meaning of the applicable provisions of the Legislation. Accordingly, without the In-Species Relief, the Filers would be prohibited from engaging the Pooled Funds in each In-Specie Transaction.

21. Each In-Specie Transaction will represent the business judgment of the Filers uninfluenced by considerations other than the best interests of the Pooled Funds concerned.

Fund-on-Fund Structure

22. Invesco wishes to cause the Balanced Pool to invest in units of the Canadian Equity Pool and the Canadian Fixed Income Pool. Invesco may from time to time, also wish to cause other Pooled Funds to invest in units of one or more of the Pooled Funds. A Pooled Fund that invests in another Pooled Fund is referred to as the Top Fund and the Pooled Fund that a Top Fund invests in is referred to as the Underlying Fund (each investment by a Top Fund in an Underlying Fund is a Fund-of-Fund Structure).

23. The investment objectives of the Balanced Pool, the Canadian Equity Pool and the Canadian Fixed Income Pool are set out in paragraphs 8 to 10 above.

24. The amounts invested from time to time in an Underlying Fund by a Top Fund may exceed 20% of the outstanding voting securities of any single Underlying Fund. Accordingly, each Top Fund could, either alone or together with the other Top Funds, become a substantial securityholder of an Underlying Fund. The Pooled Funds are, or will be, related mutual funds by virtue of the common management of the Pooled Funds by Invesco.

25. In the absence of the Related Issuer Relief, each Top Fund would be precluded from investing in an Underlying Fund due to the investment prohibitions in paragraph 111(2)(b) and subsection 111(3) of the Act.

26. Each investment by a Top Fund in an Underlying Fund represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Pooled Funds.

Filing of Reports

27. In the absence of the Reporting Relief, Invesco would be required to file a report for every transaction between a Top Fund and an Underlying Fund under section 117(1)(a) of the Ontario Act.

Decision

In-Species Relief

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator is that the In-Species Relief is granted provided that in connection with each In-Specie Transaction between the Balanced Pool and the Canadian Fixed Income Pool, between the Balanced Pool and the Canadian Equity Pool, and between any other Pooled Funds managed by Invesco in respect of which the Filers act as registered advisers:

(a) where a Pooled Fund purchases units of another Pooled Fund:

(i) the Pooled Fund acquiring securities as payment, would be permitted to purchase the securities;

(ii) the securities are acceptable to the applicable Filer, as portfolio manager of the Pooled Fund, and consistent with the investment objective of the Pooled Fund acquiring the securities;

(iii) the value of the securities is at least equal to the issue price of the securities of the Pooled Fund for which they are payment, valued as if the securities were portfolio assets of that Pooled Fund; and

(iv) each Pooled Fund will keep written records of each In-Specie Transaction in a financial year of a Pooled Fund reflecting the details of securities delivered to the Pooled Fund and the value assigned to such securities, for a period of five years after the end of the fiscal year, the most recent two years in a reasonably accessible place;

(b) where a Pooled Fund redeems units of another Pooled Fund:

(i) the securities are acceptable to the applicable Filer as portfolio manager of the Pooled Fund which redeems units, and are consistent with the investment objective of that Pooled Fund;

(ii) the value of the securities is equal to the amount at which those securities were valued in calculating the net asset value per security used to establish the redemption price;

(iii) each Pooled Fund will keep written records of each In-Specie Transaction in a financial year of a Pooled Fund reflecting the details of securities delivered to the Pooled Fund and the value assigned to such securities, for a period of five years after the end of the fiscal year, the most recent two years in a reasonably accessible place; and

(c) the Filers do not receive any compensation in respect of any In-Specie Transaction and, in respect of any delivery of securities further to an In-Specie Transaction, the only charge paid by the Pooled Fund is the commission charged by the dealer executing the trade and/or any administrative charges levied by the custodian.

"Vera Nunes"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission

Reporting Relief and Related Issuer Relief

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator is that the Reporting Relief is granted.

The decision of the principal regulator is that the Related Issuer Relief is granted provided that:

(a) units of a Top Fund are distributed in Canada solely pursuant to exemptions from the prospectus requirements in NI 45-106;

(b) the investment by a Top Fund in an Underlying Fund is compatible with the fundamental investment objectives of a Top Fund;

(c) no management fees or incentive fees are payable by a Top Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Fund for the same service;

(d) no sales or redemption fees are payable by a Top Fund in relation to its purchases or redemptions of units of an Underlying Fund;

(e) the Filers will not vote the units of an Underlying Fund held by a Top Fund at any meeting of holders of such units;

(f) if available, the offering memorandum (or other similar document) of a Top Fund will disclose:

(i) that a Top Fund may purchase units of an Underlying Fund;

(ii) the fact that the Filers are the investment advisers to both the Top Funds and the Underlying Funds; and

(iii) the approximate or maximum percentage of net assets of the Top Fund that it is intended be invested in securities of the Underlying Fund.

"Carol S. Perry"
Commissioner
Ontario Securities Commission
 
"C. Wesley M. Scott"
Commissioner
Ontario Securities Commission

 

SCHEDULE A

LIST OF EXISTING POOLED FUNDS

1. Invesco Core Canadian Fixed Income Pool (to be established on or about December 15, 2009)

2. Invesco Global Real Estate Pool

3. Invesco International Equity Fund

4. Invesco Structured Core U.S. Equity Fund

5. Trimark Balanced Pool (to be renamed Invesco Balanced Pool effective on or about December 16, 2009)

6. Trimark Canadian Equity Pool (to be renamed Invesco Canadian Equity Pool effective on or about December 16, 2009)

7. Trimark Global Equity Pool (to be renamed Invesco Global Equity Pool effective on or about December 16, 2009)